The Hong Kong Securities and Futures Commission (SFC) has completed a major overhaul of its regulatory framework for tokenized securities, formally integrating them into mainstream financial markets. In a significant policy shift, the SFC now considers tokenized securities as traditional financial products that merely exist in a digital form. This move removes the previous restriction, established in 2019, that limited access to professional investors only. Under the new rules, retail investors can now participate in eligible tokenized assets, such as plain-vanilla tokenized bonds or funds, provided they comply with existing safety and compliance standards.
The regulator's "see-through" approach ensures that investor protections under the existing framework remain intact. Issuers are permitted to tokenize legacy securities without automatically classifying them as complex products. However, the SFC mandates that licensed intermediaries are responsible for performing rigorous technical due diligence and must authoritatively record ownership on-chain. These intermediaries are required to assess cybersecurity threats, ensure business continuity, and guarantee that investors' legal rights are properly represented and maintained in the digital format. For securities utilizing public, permissionless blockchains, additional security measures are mandated to prevent theft or hacking.
Concurrently, in the United States, the Securities and Exchange Commission (SEC) – alongside its Divisions of Corporation Finance, Investment Management, and Trading and Markets – issued a joint staff statement clarifying the status of tokenized securities. The SEC emphasized that tokenizing a security does not alter its legal status under federal securities laws. Regardless of the technology used, if an instrument meets the definition of a security under laws like the Securities Act of 1933, it remains subject to SEC oversight.
The SEC outlined two primary models for tokenized securities: the issuer-sponsored model, where the issuer directly tokenizes the security, and the third-party model, where unaffiliated entities create synthetic exposure. The statement warned that third-party models may carry extra risks, such as counterparty issues, and face the same regulatory scrutiny. This guidance builds on prior SEC discussions and reinforces that innovation must not come at the expense of investor protection and compliance.
The SEC's statement was released amid a noted shift in its enforcement posture, highlighted by the recent dismissal with prejudice of its case against Gemini Trust Company related to the Gemini Earn program. The dismissal followed the full recovery of users' assets through the Genesis bankruptcy process.
